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MARKET WRAP UP 10/19/10
A confluence of several factors gave the bears an excuse for a much-anticipated sell-off today, after last evening’s post-earnings carnage. Breadth was as negative as we have seen in at least several weeks, and heavy selling indicated distribution in many areas of the market. With the S&P 500 closing down 1.59% to 1165, an abundance of rising 20 day moving averages are either currently being tested, or are on the verge of being so across the leading indices, sectors, and issues. Moving averages are useful not for automatically buying or selling a stock, but rather as reference points to gauge just how strong a trend of countertrend truly is.
Despite how bearish today looked and felt, the uptrend that began in equities in early September probably did not magically disappear in one trading session. Given how potent the trend higher has been, the dip-buyers will not go so quietly into the night even if we are, indeed, topping out here. As a swing trader seeking to profit from riding the prevailing trend, I am looking for the bulls to make their first stand in the 1150-1160 range. Today, the S&P made an intraday low of 1159, before closing several points higher. With the rising 20 day moving average at 1156, I expect that reference point to illuminate just how much underlying strength this uptrend really has.
In after-hours trading tonight, I see that $CREE and $ISRG are getting whacked in a similar “sell the news” reaction that we saw last evening in high momentum names that had seen extended runs into earnings. While those two names did not see the kind of moves into earnings that $AAPL, $VMW, and $IBM did, their selling is indicative of Mr. Market’s current mood. At the very least, he is looking to punish the latecomers to the long trade who pushed their luck into various earnings reports. Another day or two of selling should not only humble those traders who got ahead of themselves, but incidentally will also reward those market players with the discipline to wait for better entry points before becoming aggressive again.
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are you going to post any of your most favored shorts ?
Chris–
Not yet. For now, short are counter-trend/hedges. I am in SDS for the next 2-3 days max probably.